VIEWS: A Shift In Pricing Power
Can manufacturers establish retail pricing?
November 28, 2007
Can manufacturers establish retail pricing? A U.S. Supreme Court ruling has sparked an interesting discussion between grower Tom Culak of Good Earth Greenhouse in Lockport, Ill., and Jim Ralles, who represents a few horticultural manufacturers through ARI in Belmont, Calif.
Culak told Ralles about the Supreme Court ruling over the summer that overturned a 96-year-old antitrust precedent, by stating manufacturers and distributors could agree with retailers on minimum prices for products. Before, manufacturers and distributors could only suggest retail prices or withhold products from noncomplying stores, according to Bloomberg News.
The original 1911 decision in Dr. Miles vs. Park made vertical minimum price agreements illegal, regardless of the impact on competition. In the new decision split between the justices, who voted 5 to 4, the majority said price-floor agreements should be evaluated under the "rule of reason," a legal doctrine that assesses restraints on trade by looking at the impact on competition. Efforts to set price floors are especially common among makers of electronic goods, software, books and pharmaceuticals, Bloomberg News reported.
When asked about the implications for our industry, Culak says,"I don't see me as a grower being able to dictate prices to my customer, but I think it will help make it easier for us to get better prices from distributors. Jim (Ralles) just quoted me on the Aquamat system for our mum field. When I went to three distributors, I got three different prices for the same system. What are the other two giving for the same product? I'd like to see a more even price out there."
Ralles also says he likes the idea of being able to maintain the integrity of a pricepoint. "The grower decides who to buy from. It's the same price for everybody. You buy from who you like," Ralles says. "Sony products are always the same price no matter where you go. That's because all Sony products were not owned by the store. This ruling puts everything back in the hands of the manufacturer to control its destiny, which is how it should be."
Having more stabilized pricing should level the playing field among distributors, too, he adds. "The good salesman is rewarded versus losing the sale for 50 cents after investing all the time and effort with the customer," he says. "They hate that and will stop selling the product."
Both Culak and Ralles say manufacturers and distributors are sometimes at odds because the manufacturer needs to sell higher quantities. "Some distributors are just looking for 50 percent markup," Culak says. "They don't care if they sell one or 10. This is killing manufacturers. They need to sell more quantity."
What do you think? Chime in on this topic by emailing Editor Delilah Onofrey, email@example.com.